INTERNATIONAL TAX PLANNING Singapore Domestic Law And Treaties SHANKER IYER FCA
Contents Singapore Tax System Corporate & personal Recent tax developments What makes Singapore an attractive centre for International business Tax factors Non-tax factors Conclusion
Singapore Tax System Territorial tax system Income accrued in Singapore Foreign income remitted in to Singapore
Corporate Tax Rates Corporate tax rates Years of Assessment 2003 & 2004 22% Year of Assessment 2005 Government has intention to reduce to 20% Exemption from tax on: For first S$10,000 75% tax exempt For next S$90,000 50% tax exempt
Residency for Companies Company is Singapore resident if control and management of its business is exercised in Singapore. Country of incorporation is irrelevant.
Corporate Tax Rates HONG KONG 17.50% SINGAPORE 22% TAIWAN 25% MALAYSIA S.KOREA INDONESIA JAPAN THAILAND PHILIPPINES VIETNAM CHINA 28% 29.70% 30% 30% 30% 32% 32% 33% INDIA 36.75% Comparison of Asia-Pacific corporate tax rates (for income year 2003)
Personal Tax Rates Resident tax rates Marginal rates from 4% to 22% (wef Year of Assessment 2003) Non-resident tax rates Higher of 15% or resident rates
Personal Tax Rates Singapore Hong Kong Japan Taiwan South Korea Malaysia China Vietnam Thailand Indonesia India Philippines 7% 7% 8% 14% 17% 21% 21% 23% 24% 29% 31% 31% Comparison of Asia-Pacific effective personal tax rates (for income year 2002)
Personal tax Continued Residency Individual is Singapore resident if: Physically present or exercised employment in Singapore for at least 183 days in any tax year Stay in Singapore covers 3 or more consecutive years
Recent Tax Developments Major tax changes Exemption of foreign income One-tier corporate tax system Group relief Intellectual property incentives Estate duty exemption for non-domiciled individuals Not ordinarily resident (NOR) taxpayer scheme
Foreign Income Exemption All foreign income in the form of dividends, branch profits and services income will be exempt from tax Remittance on or after 1 June 2003 Conditions Foreign income has been taxed overseas From a foreign jurisdiction whose highest corporate tax rate is at least 15%
One-Tier Tax System Effective 1 January 2003 Tax payable on normal chargeable income is final tax Dividends declared will be tax exempt in shareholders hand
Group relief Company can set off its current year losses, excess capital allowances and donations against the profits of its associates (subject to certain conditions) Only companies that are incorporated in Singapore can form a group With effect from Year of Assessment 2003
Intellectual Property (IP) Patent application deduction Automatic writing down allowance on the acquisition of IP Royalty income earned from non-treaty countries qualifies for unilateral tax credit Tax exemption on foreign sourced royalties and interest income for R&D Payments made by end-users to nonresidents for on-line information and digitised goods
Estate Duty relief for nondomicile All movable assets of non domiciles are exempt from estate duty With effect from 3 May 2002
Not Ordinarily Resident (NOR) If qualified, accorded for 5 consecutive years Tax concession: Time apportionment of Singapore employment income Tax exemption Pre-assignment income remitted to Singapore Employers contributions to non-mandatory overseas pension fund or social security scheme Minimum tax payable of 10% of total employment income
What makes Singapore an attractive centre for international activities? Tax factors Non-tax factors
Tax factors Withholding tax Double taxation agreements Tax credit system Grants and tax incentives Transfer pricing Goods & Services Tax
Withholding Tax Payments to non-residents unless exempted or reduced under tax treaties Interest, royalties, rent for the use of movable property, professional fees to individuals 15% Technical fees, management fees, directors remuneration 22%
Double Taxation Agreements Singapore has an extensive treaty network Concluded tax treaties with 50 countries
Unilateral Tax Credit System Tax relief can be claimed for the following income derived from non-treaty countries Income from any services rendered outside Singapore Foreign sourced dividend Income from employment exercised outside Singapore Profit of a foreign branch Royalties (effective Year of Assessment 2004)
Grants and Tax Incentives Range of Government Grants Tax holidays for pioneer / high value adding / growth industries Incentives includes: Pioneer enterprise Headquarters programme * Global trader programme * (* For detailed conditions, please refer to handout)
Transfer pricing requirements No specific tax legislation nor practical guidelines on transfer pricing Two provisions (S33 and S53(2A)) in the Singapore Income Tax Act which can be used to apply to transactions between related parties
Goods and Services Tax (GST) Current GST (VAT) rate is 4% Registration Threshold SGD 1M Will increase to 5% from 1 January 2004 onwards Major Exporter Scheme (MES) where no GST is incurred upon importation by qualified importer
Non-tax factors Free trade agreements Exchange controls E-filing of documents Immigration rules Company law reform relevant changes Custom duties Others
Free Trade Agreements Singapore has concluded / is negotiating FTAs with the following Australia Japan Concluded European Free Trade Association New Zealand United States Under negotiation ASEAN and the People s Republic of China Canada South Korea Mexico India Chile Jordan
E-filing of Documents E-filing can be used for the following: Personal tax returns Registration and filing of documents to the Registry of Companies and Businesses Business incorporation
Immigration Rules Expatriates require employment pass to work in Singapore Normal processing time is only two weeks
Company Law Reform Relevant Changes Audit exemption for following companies with financial year beginning on or after 15 May 2003 Dormant Small exempt private companies Private company with no corporate shareholder and not more than 20 shareholders Annual revenue not exceeding S$2.5m (will be increased to S$5m after one year) No requirement to appoint professionally qualified company secretaries for private companies
Conclusion Benefits of using Singapore as a regional/holding/headquarter company Tax factors Low corporate tax rate of 22% Extensive tax treaty network Tax exemption of foreign dividends, foreign branch profits and foreign-sourced service income (subject to certain conditions) Dividends distributed to shareholders tax exempt Group relief Tax incentives including headquarters incentive etc
Conclusion ( cont d) Non-tax factors FTA with various countries Removal of legal requirement for audit for small exempt private companies E-filling of documents Immigration rules Political stable and excellent business infrastructure and skillful workforce etc
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